Business: A Practical Introduction (Williams/Sawyer/Berston)
Chapter 1 Starting Out
1) A nonprofit organization is a business.
Answer: FALSE
Explanation: A business is an organization focused on earning profits, so a nonprofit organization does not fit the definition of a business.
Page Ref: 4
Difficulty: Easy
Objective: 1.1 What is business, and how are profits made?
Classification: Concept
2) Global outsourcing is the practice of using suppliers outside the United States to provide labor, goods, or services for an American business.
Answer: TRUE
Explanation: Global outsourcing is also known as offshoring, and has contributed to the decline in American manufacturing.
Page Ref: 6
Difficulty: Easy
Objective: 1.1 What is business, and how are profits made?
Classification: Concept
AACSB: Dynamics of the Global Economy
3) Only nonprofit organizations provide benefits to society.
Answer: FALSE
Explanation: Business organizations offer many societal benefits, including an improved quality of life and financial support for government services.
Page Ref: 7
Difficulty: Easy
Objective: 1.2 How can business benefit society?
Classification: Concept
4) Innovation is one factor used to measure a society's quality of life.
Answer: TRUE
Explanation: Quality of life is measured by standard of living, health care, education, freedom, happiness, art, environmental health, and innovation.
Page Ref: 7
Difficulty: Easy
Objective: 1.2 How can business benefit society?
Classification: Concept
5) Taxes paid to the government by both a business and its employees provide an important social benefit.
Answer: TRUE
Explanation: Local, state, and federal governments use tax revenues to pay for important public services such as education, safety, and health.
Page Ref: 8
Difficulty: Easy
Objective: 1.2 How can business benefit society?
Classification: Concept
6) Donating goods or services to a community group will cause a business to become a nonprofit.
Answer: FALSE
Explanation: A business can earn profits and still provide direct social benefits through donations.
Page Ref: 8
Learning Outcome: Discuss the roles of ethics and corporate responsibility in business
Difficulty: Easy
Objective: 1.2 How can business benefit society?
Classification: Synthesis
AACSB: Ethical Understanding and Reasoning
7) People who are self-employed are more likely to be wealthy than people working in a salaried position.
Answer: TRUE
Explanation: Researchers Stanley and Danko found that self-employed people are four times more likely to be millionaires than salaried workers.
Page Ref: 9
Learning Outcome: Explain the entrepreneurship process
Difficulty: Easy
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
8) Higher degrees of wealth are always generated by high-end businesses such as jewelers and lush seaside resorts.
Answer: FALSE
Explanation: Business type is not a predictor of wealth. Many self-employed millionaires are engaged in agriculture, pest control, and other "unglamorous" fields.
Page Ref: 9
Learning Outcome: Explain the entrepreneurship process
Difficulty: Easy
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
9) Compared to entrepreneurs, salaried employees face no risk in their ability to earn a living and generate wealth.
Answer: FALSE
Explanation: Entrepreneurs face the risk of a business not earning profit, but salaried employees are at risk of losing their job due to outsourcing, economic conditions, and other factors.
Page Ref: 10
Difficulty: Easy
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
10) Businesses in the high-tech sector have no need for natural resource factors of production.
Answer: FALSE
Explanation: A technology-based business may utilize land for facilities, water to cool machinery, and sunlight to generate power.
Page Ref: 10
Difficulty: Moderate
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
11) Businesses that only provide services do not rely on factors of production.
Answer: FALSE
Explanation: The word production does not imply manufactured goods. Service businesses rely on natural resources, capital, human resources, entrepreneurship, and knowledge—the factors of production.
Page Ref: 10
Difficulty: Easy
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
12) Most natural resource factors of production cannot be created by a business.
Answer: TRUE
Explanation: Most of these resources are created by nature and must be mined, harvested, harnessed, or purified.
Page Ref: 10
Difficulty: Easy
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
13) Money is not considered a factor of production.
Answer: TRUE
Explanation: Within the definition of factors of production, the term capital includes buildings, machines, tools, and technology used to produce goods and services.
Page Ref: 11
Difficulty: Moderate
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
14) Taking risks to create a new business is considered a factor of production.
Answer: TRUE
Explanation: This activity is known as entrepreneurship—a traditional factor of production.
Page Ref: 11
Learning Outcome: Explain the entrepreneurship process
Difficulty: Easy
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
15) A recent addition to the traditional factors of production is technology.
Answer: FALSE
Explanation: Technology is considered a capital factor of production. Knowledge is considered an addition to the four traditional factors.
Page Ref: 11
Difficulty: Moderate
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
16) The variety of forces that can encourage or discourage business development comprises the business environment.
Answer: TRUE
Explanation: These forces are economic, technological, competitive, global, and social.
Page Ref: 12
Difficulty: Easy
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
17) Only large enterprises need to be concerned about forces within the business environment.
Answer: FALSE
Explanation: Businesses of all sizes are impacted by these forces; even a sole proprietor must respond to demographic changes or comply with economic regulations.
Page Ref: 12
Difficulty: Easy
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
18) The term for all the equipment and machines required to help a business operate is technology.
Answer: TRUE
Explanation: Technology does not just refer to sophisticated tools like tablet computers and electron microscopes; a pickup truck can help a farmer transport goods.
Page Ref: 12
Learning Outcome: Identify the different types of technologies used in business and describe their uses
Difficulty: Easy
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
19) Advances in technology always exert positive forces in the business environment.
Answer: FALSE
Explanation: One example of a negative technological force is the increased risk to both businesses and consumers from computer hackers who gain access to sensitive information.
Page Ref: 13
Learning Outcome: Identify the different types of technologies used in business and describe their uses
Difficulty: Easy
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
20) Businesses facing competitive forces are only concerned with customers.
Answer: FALSE
Explanation: A company may compete with other businesses for employees in a tight labor market.
Page Ref: 13
Difficulty: Easy
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
21) The measurable characteristics of a particular population are called demographics.
Answer: TRUE
Explanation: Demographics include age, race, gender, family composition, and other characteristics, all of which impact the market for goods and services.
Page Ref: 13
Difficulty: Easy
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
AACSB: Multicultural and Diversity Understanding
22) In the United States, the increased use of store signage in both English and Spanish is a response to global forces in the business environment.
Answer: FALSE
Explanation: Bilingual signs are a response to the growing number of Hispanics living in the United States. This demographic change is a social force.
Page Ref: 13
Difficulty: Easy
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
AACSB: Multicultural and Diversity Understanding
23) The only grocery store in an isolated rural town has little incentive to improve product variety or quality of service.
Answer: TRUE
Explanation: With no pressure from competitive forces, the store does not need to make additional effort or incur further expense to attract or retain customers.
Page Ref: 13
Difficulty: Easy
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
24) Recession, currency valuations, and trade pacts are all examples of economic forces impacting the business environment.
Answer: FALSE
Explanation: Recession, currency valuations, and trade agreements are considered global forces affecting business development.
Page Ref: 13
Difficulty: Moderate
Objective: 1.4 What major forces affect the way companies and individual businesspeople operate?
Classification: Concept
25) Managing a business requires balancing the needs and perspectives of a wide variety of stakeholders.
Answer: TRUE
Explanation: Business management requires balancing the perspectives of various stakeholders, including employees, suppliers, and interest groups.
Page Ref: 15
Difficulty: Moderate
Objective: 1.5 What are Seven Key Business Rules to observe in pursuing business success?
Classification: Concept
26) Competitors are a stakeholder group in a business.
Answer: FALSE
Explanation: Although they are interested in what similar businesses are doing, competitors are not considered part of a particular organization's stakeholder environment.
Page Ref: 15
Difficulty: Moderate
Objective: 1.5 What are Seven Key Business Rules to observe in pursuing business success?
Classification: Concept
27) Competitive advantage is the ability of an organization to sell goods or services at a lower price than its competitors.
Answer: FALSE
Explanation: Competitive advantage is the ability of an organization to produce goods or services more effectively than its competitors.
Page Ref: 19
Difficulty: Moderate
Objective: 1.5 What are Seven Key Business Rules to observe in pursuing business success?
Classification: Concept
28) Social differences such as the increasing diversity of the U.S. population impact both customers and employees of an organization.
Answer: TRUE
Explanation: While some business managers may focus on addressing social changes in their customer base, such changes also impact the labor pool.
Page Ref: 21
Difficulty: Easy
Objective: 1.5 What are Seven Key Business Rules to observe in pursuing business success?
Classification: Concept
AACSB: Multicultural and Diversity Understanding
29) People who want to be successful in business have no time to focus on personal skills.
Answer: FALSE
Explanation: Acquiring valuable personal skills such as analytical thinking is one of the Seven Key Business Rules for Success.
Page Ref: 22
Difficulty: Easy
Objective: 1.5 What are Seven Key Business Rules to observe in pursuing business success?
Classification: Concept
30) In terms of achieving business success, self-development requires learning how to perform a specific job, think analytically, and interact well with people.
Answer: TRUE
Explanation: Being effective in business is not limited to successfully managing big issues like demographic change and economic uncertainty; it also requires managing yourself through these three important skill sets.
Page Ref: 22
Difficulty: Easy
Objective: 1.5 What are Seven Key Business Rules to observe in pursuing business success?
Classification: Concept
31) What is the primary purpose of a business?
A) to pay employees
B) to provide services
C) to generate revenue
D) to earn profit
E) to support the community
Answer: D
Explanation: D) A business is a for-profit organization.
Page Ref: 4
Difficulty: Moderate
Objective: 1.1 What is business, and how are profits made?
Classification: Concept
32) Which of the following is an example of a business?
A) San Francisco State University
B) Sears
C) Red Cross
D) St. Augustine Parish
E) Massachusetts Teachers Association
Answer: B
Explanation: B) Sears is a retail business that sells goods to earn a profit.
Page Ref: 4
Difficulty: Easy
Objective: 1.1 What is business, and how are profits made?
Classification: Application
33) What is the term for the total amount of money produced by the sale of goods and services?
A) revenue
B) profit
C) assets
D) expenses
E) loss
Answer: A
Explanation: A) Businesses commonly calculate revenue received from selling goods and services for a defined period.
Page Ref: 5
Difficulty: Moderate
Objective: 1.1 What is business, and how are profits made?
Classification: Concept
34) Which of the following is NOT an example of a good?
A) a pair of shoes
B) a print ad
C) a dozen farm-fresh eggs
D) a barrel of oil
E) a stack of diner pancakes
Answer: B
Explanation: B) Goods are tangible products that can be touched. While a print advertisement can be seen and touched, customers pay for the services that create the ad.
Page Ref: 5
Difficulty: Moderate
Objective: 1.1 What is business, and how are profits made?
Classification: Application
35) What is the formula for calculating profit?
A) revenue minus loss
B) revenue plus costs
C) expenses minus revenue
D) revenue minus expenses
E) expenses plus revenue
Answer: D
Explanation: D) The amount of revenue remaining after all business costs are paid is profit.
Page Ref: 5
Difficulty: Moderate
Objective: 1.1 What is business, and how are profits made?
Classification: Concept
36) Which of the following is NOT an example of a service?
A) yoga classes
B) health care
C) advertising
D) aspirin
E) personal training
Answer: D
Explanation: D) Aspirin is a tangible product and is considered a good, not a service.
Page Ref: 5
Difficulty: Easy
Objective: 1.1 What is business, and how are profits made?
Classification: Application
37) Last year, Carmela's florist shop had higher expenses than revenues. Which of the following must be true?
A) Carmela is operating a nonprofit organization.
B) The florist shop posted a profit for last year.
C) The florist shop posted a loss for last year.
D) Carmela needs to raise the prices for her goods.
E) Carmela's employees earned no salary last year.
Answer: C
Explanation: C) With expenses for the business running higher than revenues, the shop posted a loss.
Page Ref: 5
Difficulty: Moderate
Objective: 1.1 What is business, and how are profits made?
Classification: Application
38) Jenny built an online business selling "dream kits"—plastic boxes filled with glitter and charms. She had been buying empty boxes from a local company, but when she learned about a company in Vietnam offering them at one-third the cost, she pursued this option to lower her costs. What is Jenny practicing?
A) global outsourcing of labor
B) global outsourcing of services
C) global outsourcing of capital
D) global outsourcing of technology
E) global outsourcing of goods
Answer: E
Explanation: E) Jenny is using suppliers outside the United States to obtain goods—the plastic boxes—at a lower price.
Page Ref: 6
Learning Outcome: Discuss strategies for setting and adjusting prices
Difficulty: Moderate
Objective: 1.1 What is business, and how are profits made?
Classification: Application
AACSB: Dynamics of the Global Economy
39) What is the term for the amount of goods and services people can buy with the money they have?
A) quality of life
B) happiness
C) standard of living
D) consumer sentiment
E) social benefit
Answer: C
Explanation: C) Standard of living is one component of the overall measure of a society's quality of life.
Page Ref: 7
Difficulty: Moderate
Objective: 1.2 How can business benefit society?
Classification: Concept
40) Which of the following elements of business does NOT contribute directly to improving quality of life?
A) profits
B) goods
C) services
D) paychecks
E) research
Answer: A
Explanation: A) Profits are beneficial to the health of the business, but do not directly support a society's quality of life.
Page Ref: 7
Difficulty: Moderate
Objective: 1.2 How can business benefit society?
Classification: Concept
41) Zack sells organic tacos out of a truck parked on an Ivy League college campus. It's a one-person operation, but the business is quite successful. Zack believes it's important for business to benefit society. Given his current operation, what is the best way for Zack to do this?
A) expand his menu options to sell more goods
B) hire two employees and offer them health benefits
C) donate unsold food to a homeless shelter
D) alternate among various locations and pay additional government permit fees
E) offer catering services on weekends
Answer: C
Explanation: C) As a small business, Zack's most viable option to help benefit society is donating to a community cause.
Page Ref: 8
Difficulty: Moderate
Objective: 1.2 How can business benefit society?
Classification: Application
42) Most affluent households in America are headed by business owners. The self-employed account for what proportion of this group?
A) one-third
B) one-fourth
C) one-half
D) two-thirds
E) three-quarters
Answer: D
Explanation: D) Researchers Stanley and Danko have found that self-employed business owners comprise more than two-thirds of affluent U.S. households not headed by retirees.
Page Ref: 9
Learning Outcome: Describe the role of small businesses in the economy
Difficulty: Moderate
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
43) Many factors are necessary to achieve financial success in business. What do Stanley and Danko, authors of The Millionaire Next Door, consider to be the most important factor?
A) access to capital
B) serving a high-end market
C) quality products
D) personal character
E) limited government regulation
Answer: D
Explanation: D) The authors state that the character of the business owner is more important than the kind of business in predicting level of wealth.
Page Ref: 9
Difficulty: Moderate
Objective: 1.3 What are the main sources of wealth?
Classification: Concept
44) Entrepreneurs invest time and money in a business in spite of the fact that it may not make a profit. In business terminology, what is this situation known as?